using isolated ATmega328

Once the Atmel ATmega328 has been programmed for photosensor and servo for example, can it then be removed from the board and hidden in a piece of art (wiring power, sensor and servo of course?)

In addition to power for the ATMega328, sensors, and servos, you'll need a voltage regulator circuit, and a crystal and some capacitors (to regulate timing).

It might be easier to use an Arduino Pro Mini:

Same capabilities as the Duemilanove, but smaller.

For further information see:-